Valero Energy Corp (VLO, Financial) has seen a daily gain of 3.54%, and a 3-month gain of 25.9%, with an Earnings Per Share (EPS) (EPS) of 29.03. But, is the stock fairly valued? This comprehensive analysis aims to answer that question and provide valuable insights into Valero Energy's financial performance and future prospects.
Company Introduction
Valero Energy is one of the largest independent refiners in the United States. Operating 15 refineries with a total throughput capacity of 3.2 million barrels a day in the United States, Canada, and the United Kingdom, Valero Energy also owns 12 ethanol plants with a capacity of 1.6 billion gallons of ethanol a year. It holds a 50% stake in Diamond Green Diesel, which can produce 1.2 billion gallons per year of renewable diesel. With a current stock price of $141.07 and a market cap of $49.80 billion, Valero Energy's intrinsic value, estimated through our GF Value, stands at $133.41.
Understanding GF Value
The GF Value is a unique measure of a stock's intrinsic value, computed based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. The GF Value Line on our summary page provides an overview of the fair value at which the stock should ideally be traded. If the stock price is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
According to GuruFocus Value calculation, Valero Energy is estimated to be fairly valued. This suggests that the long-term return of its stock is likely to be close to the rate of its business growth.
Link: These companies may deliever higher future returns at reduced risk.
Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it's crucial to review a company's financial strength before deciding to buy shares. Valero Energy has a cash-to-debt ratio of 0.45, which ranks worse than 52.11% of 1021 companies in the Oil & Gas industry. However, GuruFocus ranks Valero Energy's financial strength as 8 out of 10, suggesting a strong balance sheet.
Profitability and Growth
Investing in profitable companies carries less risk. Valero Energy has been profitable 9 years over the past 10 years. During the past 12 months, the company had revenues of $157.10 billion and Earnings Per Share (EPS) of $29.03. Its operating margin of 9.48% is better than 52.02% of 967 companies in the Oil & Gas industry. GuruFocus ranks Valero Energy's profitability as strong.
Long-term stock performance is closely correlated with growth . Companies that grow faster create more value for shareholders. The average annual revenue growth of Valero Energy is19.4%, which ranks better than 69.65% of 850 companies in the Oil & Gas industry. The 3-year average EBITDA growth is 45.7%, which ranks better than 81.22% of 820 companies in the Oil & Gas industry.
ROIC vs WACC
Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. For the past 12 months, Valero Energy's return on invested capital is 28.86, and its cost of capital is 9.87.
Conclusion
Overall, Valero Energy's stock is estimated to be fairly valued. The company's financial condition is strong and its profitability is strong. Its growth ranks better than 81.22% of 820 companies in the Oil & Gas industry. To learn more about Valero Energy stock, you can check out its 30-Year Financials here.
To find out the high quality companies that may deliver above average returns, please check out GuruFocus High Quality Low Capex Screener.
